The cyclical nature of economic development

Economics is never at rest. In place of prosperity comes a crisis or panic. The national income, employment of the population and production are falling. Workers are on the street, profit is significantly reduced. When the whole process, in the end, reaches a critical point, recovery begins. The update can be either slow or fast, as well as incomplete and complete. A new wave of prosperity entails a steady level of brisk demand, a large number of vacant jobs, higher prices and living standards. Or, on the contrary, rapid inflation, speculation and the emergence of a new crisis can happen.

This is a general picture that represents the cyclical nature of economic development. It is characteristic of the national economy of the industrialized countries of the world for the past seventy years.

The reasons for the cyclical development of the economy should be sought primarily in the transition of society from a relatively natural economy to a monetary economy, accompanied by a close interconnection of its chains.

Each subsequent stage of development is not an exact copy of the previous one. However, they are very similar, as are the members of the same family. The cyclical nature of economic development can not be fully envisaged with the help of calculations and some formulas. Its manifestations are so swift and unbalanced that they resemble changes in the weather or waves of epidemics.

All that has been said above suggests that the cyclical development of the economy is just one of the aspects of the problem of achieving and maintaining a high level of employment and production, and the steady progress of the country's economy.

In the past, when there was a lack of statistical information, when considering this issue, too much attention was paid to crises, panic attacks, bankruptcies. Later, discussing the cyclical nature of economic development, there were already two phases: prosperity and depression. Or, it was clarified that the boom and crisis have peaks and points of fall, which are turning points between these phases. Now it is generally accepted that not every period of improving economic activity entails full employment of the population in production. For example, after the well-known crisis in America in the early 1930s, during the next few years, there was an update and a fall to a lower level, that is, a period of prosperity is out of the question. Therefore, the scientist Welsey K. Mitchell, analyzing what was happening, divided the cyclical nature of economic development into four phases. The most important are the periods of expansion and contraction. The first phase (expansion), reaching the top, goes into a compression phase. In the same way, the compression phase reaches the lower point of recovery and again goes into the expansion phase. That is, all four phases consistently pass one into another. An important issue for modern economists is the consideration not of periods of rise and fall, but of the dynamics of economic development. The economic cycle, like a calendar year, consists of four seasons. The turning points share the periods of expansion and contraction. And not every peak means flourishing in terms of low unemployment. As well as not every bottom point means a crisis.

Each phase is characterized by its own economic conditions and needs a special approach. The duration of the economic cycle depends on which of the cycles is taken into account. Some researchers, viewing the process from a historical point of view, talk about very long waves. Their full cycle covers about fifty years. But not all economists consider it necessary to allocate short cycles (when only weak recessions are felt) that are included in one large cycle.